Journal Entry for Prepaid Expenses
Prepaid expenses are those expenses which are paid in advance for a benefit yet to be received. It acts like an asset and considers the rules “debit the increase in asset” and “credit the decrease in expenses” (modern approach).
The journal entry for prepaid expenses involves two accounts: prepaid expense a/c and expense a/c.
|Prepaid Expense A/C||Debit|
|To Expense A/C||Credit|
Let’s assume that in March 10,000 are paid in advance for rent which is due in the following month, i.e. April. The journal entry to record this in March will be
|Prepaid Rent A/C||10,000|
|To Rent A/C||10,000|